Annual demand for a product is 10,400 units; weekly demand is 200 units with a s

Question

Annual demand for a product is 10,400 units; weekly demand is 200 units with a standard deviation of 75 units. The cost of placing an order is $100, and the time from ordering to receipt is four weeks. The annual inventory carrying cost is $0.50 per unit.

To provide a 98 percent service probability, what must the reorder point be? (Round your answer to the nearest whole number.)

Suppose the production manager is told to reduce the safety stock of this item by 110 units. If this is done, what will the new service probability be? (Round your answer to 2 decimal places.)

Annual demand for a product is 10,400 units; weekly demand is 200 units with a standard deviation of 75 units. The cost of placing an order is $100, and the time from ordering to receipt is four weeks. The annual inventory carrying cost is $0.50 per unit.

Explanation / Answer

a)

for 98 % service level value of z= 2.06

saftey stock = z* standard deviation *sqrt(lead time)

= 2.06 * 75 * sqrt(4)

=309 units

Reorder point = average weekly demand * Lead time + safte stock

= 200 * 4 + 309

= 1109 units

b)

saftey stock = z* standard deviation *sqrt(lead time)

110 = z * 75 * sqrt(4)

z=0.88

New sercice probability = 81%

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